Friday, 16 November 2012
The Danger of a single story by Chimamanda Adichie
Saturday, 3 November 2012
SUSTAINABLE LIVING
Is life so sweet or peace so dear
To be purchased at the price of
chains and slavery?
Our freedom for a little bread we
sell
And drudge under some foolish
master’s ken
Who rates us as if we peer with
the pen.
At eve should be the time, they
said
“To close their dreams in
despair”
At that pleasant day
Our work was over
Our toil was done
At the set of the sun
We await our wages
But, the wages of death they did
lay at our feet
More strong were it’s stench I
could not bear
Someday,I’ll live above this
In liberty or in death!
In my dreams
A platter of gold laid at my feet
The glory of sun set above my
head
And my garden filled with flowers
I bask in such a life incredibly
sustainable.
CORPORATE GOVERNANCE AND NIGERIA CAPITAL MARKET DEVELOPMENT
The concept of corporation is foreign to the indigenous customary business practices of pre-colonial Nigeria. The first corporations to operate in Nigeria, British companies chartered in England, arrived in the second half of the 19th century. One of first and most influential of these was the National African Company (later renamed the Royal Niger Company), which was chartered in 1886. Between 1862 (when colonial rule was formally established in Nigeria) and 1912, all of the corporations that operated in Nigeria were foreign companies registered in England and subject to the law and ideology of the British corporate governance system. The first corporate statute in Nigeria was enacted in 1912. However, corporate governance in Nigeria during the period of colonial rule remained a part of the British system of corporate governance. It was only in the post-colonial period that we began to speak of “Nigerian” corporate governance.
Following independence in 1960, several factors affected the
direction of corporate governance in Nigeria. Perhaps, most important among
these were the dominant ideological convictions of the post-colonial period,
which stressed economic self-dependence. Economic self-dependence was primarily
understood in terms of indigenous ownership and control of the means of
production and was operationalized into two basic broad areas. First, the
government imposed absolute control over public utilities, infrastructure and social
service provision by establishing state owned corporations. While there was
significant interest among foreign investors, especially British corporations,
in many of these areas, the state prohibited foreign ownership. In many instances,
the state did not even permit participation by private, domestic corporations. Activities
in such areas as electricity generation and distribution, telecommunications,
postal and telegraphic services, shipping and ports, and air
travel, among others, were restricted to wholly owned state
corporations. Second, the government promoted indigenous ownership in other
sectors of the economy, two pieces of legislation served as an impetus to this
strategy, viz., the Foreign Exchange Control Act of 1962 and the Nigerian
Enterprises Promotion Decree, No. 4 of 1972, often referred to as the “Indigenisation
Decree’. The Foreign Exchange control Act prohibited the creation or transfer
of any security or interest in a security in favour of a person resident
outside Nigeria except with the permission of the Minister of Finance, while
the Nigeria Enterprises promotion Decree restricted foreign ownership by creating
three schedules of enterprises: (i) enterprises exclusively reserved for
Nigerians; (ii) enterprises in respect of which foreigners cannot hold more than
40% of the shares, and (iii) enterprises in respect of which foreigners cannot
hold more than 60%. This classification was based on the perceived financial
and managerial needs of the country at the time. The second schedule was comprised
of manufacturing companies where foreign participation was expected to bring foreign
capital and managerial expertise. The third schedule included capital-intensive
enterprises.
Although there was a great deal of optimism in 1960 about the
development prospects of the newly independent country, fifty-two years on Nigeria
is still largely considered a developing nation. The country still lacks an
efficient infrastructure (e.g. Communications and transportation systems,
electricity, water, etc.), unemployment rates are high and social needs far
outstrip social programs. In addition, the country is rife with corruption and
divided by ethnic and tribal tensions. These features of Nigeria socio-economic
development have major repercussions for business, both in the private and
public sector.
While
commenting on the problems of the Nigerian economy, a former Governor of Central
Bank of Nigeria expresses frustration felt by many:
[t]here appears to be a certain
built-in stubbornness
in the attitude of the typical
Nigerian
economic agent . . . It manifests itself in a strong
propensity to circumvent laid-down rules of
economic behaviour and to resist control and
regulation . . . it tends to encourage a kind of
softness and lukewarmness in the application and
implementation of legitimate rules of economic
conduct. Hence it provides a fertile ground for
bribery, corruption, idleness and the contrivance
of get-rich quick attitude which are antithetical
to hard work and discipline (Ahmed, 1996, p. 14).
Of course, the nature of Nigeria’s problems is not only rooted in
the attitudes of individual Nigerians, but it is also related to larger
political and economic structures and practices. Hence, the question of
corporate governance in the Nigeria capital market is more of an ethical
undertone defining the route of social economic growth of emerging and
developed economies. The capital market has been identified as a network of
specialized financial institutions with series of mechanisms, processes and
infrastructures that in various ways facilitate the bringing of suppliers and
users of medium to long term capital for market development of existing
securities. The roles of the capital market in the
development of the economy include: provision of opportunities for companies to
borrow funds needed for long-term investment purposes; creating avenue for the
marketing of shares and other securities in order to raise fresh funds for
expansion of operations leading to increase in output/production; providing
means of allocating the nations real and financial resources between various
industries and companies. Through the capital formation and allocation
mechanism the capital market ensures an efficient and effective distribution of
the scarce resources for the optimal benefit to the economy; It reduces the
over reliance of the corporate sector on short term financing for long term
projects and also provides opportunities for government to finance projects
aimed at providing essential amenities for socioeconomic development; The
capital market aid the government in its
privatization programme by offering her shares in the public enterprises to
members of the public through the stock exchange; The capital market also
encourages the inflow of foreign capital when foreign companies or investors
invest in domestic securities, provides needed seed money for creative capital
development and acts as a reliable medium for broadening the ownership base of
family owned and dominated firm.
The imperative role of the Nigeria capital market in the economy
makes the analysis of its development a proper and precinct course of
discussion. In recent years the Nigeria capital market has performed fairly despite the numerous challenges and problems
cluttering her, some of which include: the buy and hold attitude of Nigerians,
massive ignorance of a large population of the Nigerian public of the nature
and benefits of the capital market, few investment outlets in the market, lack
of capital market friendly economic policies and political instability, private
sector led economy and less than full operation of recent developments like the
Automated Trading System (ATS), Central Securities Clearing System (CSC),
On-line and Remote Trading, Trade Alerts and Capital Trade Points of the
Nigerian Stock Exchange. The records also indicate that the market
capitalization which is the most widely used indicator in assessing the size of
a capital market to an economy; either in a bearish or bullish market has fairly
been on the increase. Before 1988, the total market capitalization was less
than N10 billion, from 1988 to 1994 it hovered between N10 billion to N57
billion. In 2003 it was N1.3593 trillion, N2.1125 trillion in 2004 and N5.12
trillion in 2006. However, the market capitalization nose- dived from an all
time high value of N13.5 trillion in March 2008 to less than N4.6 trillion by
the second week of January 2009.Besides, the all share index ( a measure of the
magnitude and direction of general price movement) also plummeted from about
66000 basis points to less than 22000 points in the same period; the stock
prices have also experienced a free for all downward movement regime with more
than 60% of slightly above 300 quoted securities on constant offer (supply exceeding
demand) on a continuous basis. A number of factors have been attributed to this
sorry state of affairs, such as: global phenomenon in the world economy which
has not spare the Nigeria capital market of its global malignant cancer, lack
of infrastructure and high production cost; impact of commercial banks
following the forced capitalization of banks to a minimum of N25billion;
avalanche of private placement offers; bank short term orientation imposed on
long term capital market; inability of the federal government to plot a bailout
option etc.
Vividly, this sorry state is being exacerbated by the
abuse of share holder rights; it is conceived in terms of principal- agent
problem in which the managements (agents) of widely held firms are predisposed
to maximize its own interest rather than those of shareholders (principals). In this context, many managers and directors have been able to use
corporate opportunities and resources for their own personal benefit at the
expense of the corporation and its shareholders thereby resulting into a near
extinction of the capital market. An odious example is the case of Lever
Brothers Plc., a public listed company in Nigeria. Between 1996 and 1998, there were reports of
abuse by senior management, including insider dealings, shares racketeering and
the awarding of supply contracts to companies in which senior management had
interests. Sources also disclosed that one of the key officers of the company
had up to 18 official cars, while almost all of the company’s major contracts
were handled by a company registered in his wife’s name. The reports further
revealed that employment and other management decisions were based more on
ethnic solidarity than efficiency consideration. Corporate abuse in Lever Brothers
culminated in serious financial irregularities. The Nigerian Stock Exchange
suspended the company in 1998 for submitting an annual return with
irregularities. The company’s turnover in the first quarter of 1997 before
adjustment stood at N4 billion, with a profit before and after tax at N791.3
million and N554.7 million respectively. After adjustment, there was a N5.8
billion turnover, while profits before and after taxes were N351million and
N244.95million respectively. The Lever Brothers case raises several issues, but
most importantly the inability of majority shareholders to monitor management. The
buck to institute a woe- free Capital market stops at the desk of productive
reforms in corporate governance. The reform process must involve choosing the
best form of corporate governance; existing structures and practices like
economic liberalization and deregulation (e.g tax cuts, privatizing state-run
industries etc) should be streamline while other reforms that directly affect
governance, e.g., strengthening company law (to provide greater legal
guarantees to investors), reforming the legal system (so that shareholders’
rights can be effectively enforced) and liberalizing capital markets (to allow
for a more efficient allocation of capital and attract investment funds) should
be initiated. In addition, the liberalization of foreign investment laws should be encourage
in other to facilitate the inflow of foreign capital, which is likely to
monitor managers more effectively.
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